How Marketing Can Encourage Saving

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By WSJ. Custom Studios

Marketing makes us want to buy all kinds of stuff. But can marketing magic make saving more appealing, fun, or even cool?

Virtually everyone would like to retire comfortably and to be free from financial worry on a daily basis. Yet, many people don’t save enough even for unexpected expenses—a proposition that’s even more challenging for low-to-medium income people. Look to a U.S. Federal Reserve Board survey published in May 2016, in which 46 percent of respondents said they couldn’t cover even a $400 emergency expense without selling something or borrowing money.

Behavioral economics argues that we are imperfect beings in an imperfect world. We are swayed by biases, we lack key information or—perhaps most likely—we don’t act at all.

“Tomorrow, we are wonderful people,” says Kristen Berman of Common Cents Lab, a behavioral lab at Duke University. “But today, we may eat the muffin, we may spend a little bit more, we may watch a movie when we should otherwise be working.”

Our behavior may be present-biased, Berman says, but it can also be influenced. The key lies in shaping the environmental cues that inform why we make certain financial decisions. That can mean creating ways for people to save automatically or encouraging new bank customers to set financial goals. Increasingly, it also means behavioral science, rather than nagging, to entice people into healthy financial behavior.

“Saving is a particularly hard thing to do because its benefit is in the future and it’s abstract, while the things that are typically marketed can help you out today. What behavioral science could do for saving is try to bring the benefit closer to the immediate present.”

Kristen Berman

For example, prize-linked savings accounts (PLSA) couple the long-term benefits of saving with the short-term gratification of playing the lottery. These programs reward even small savings deposits by giving account holders the chance to win cash prizes. Through Save to Win, the nation’s first large-scale PLSA, more than 60,000 Americans saved $138 million between 2009 and 2015.

“Most of us would like to be financially secure, so it’s not about trying to get people to do something they don’t already want to do,” says Timothy Flacke, executive director of Commonwealth, a Boston-based nonprofit that helped design Save to Win. “It’s figuring out how to make it easy and practical, especially for people who are often incredibly busy, holding down multiple jobs, possibly single parents. A lot of things are competing for their time, attention and money.”

Commonwealth created another program targeting low-to-medium income people, SaveYourRefund, that connects a savings-based sweepstakes to tax season. “Well over $300 billion flows from the IRS back to households every single year in the form of federal tax refunds,” Flacke says. “And so if you’re focused on financial security and savings, there is really no better moment to raise the question of saving.”

SaveYourRefund enters participants in a $100 prize drawing when they commit to depositing part of their tax refund in a savings product at the time of filing. Players who submit a photograph representing their savings goal get to compete for a $25,000 grand prize.

According to Commonwealth, last year’s entrants saved an average of $838 each. Altogether, over 9,000 filers have saved more than $7.5 million since the program’s launch in 2013. Last year’s grand prize winner, Ebony Brown-Parks of Elgin, Illinois, intends to put her winnings toward a down payment on a home. She’s entered SaveYourRefund every year since 2013, staying true to her financial goals through years of post-recession economic uncertainty.

“I have no interest in being a scold,” Flacke says. “I think people make the best choices they can, but we have to acknowledge how difficult it can be. We need to find more and better tools to convert good intentions and self-discipline into financial security.”

Other organizations have used marketing techniques borrowed from retailers, not to make a sale, but to encourage financial health. In the Philippines, a country where nearly 40 percent of households lack the funds to handle emergencies or any unexpected expenses, New York-based nonprofit ideas42 experimented with a tracking tool to help low-income bank customers understand how their deposits might add up over time.

“We discovered that in this community, it was common to receive calendars from retailers—and people actually used them. So we knew that if we developed this calendar tool, people were likely to use it,” says Katy Davis, managing director of ideas42. “We also knew that there was a psychological principle that people tend to undervalue things that accumulate over time, so the calendar prompted them to mark down how much they saved per week, per month. They could see, ‘I’m making progress over time.’ It adds up to more than it feels like on a daily basis.”

According to ideas42, customers who used the calendars (one of several behavioral levers employed in the project) were 73 percent more likely to perform an account transaction, with balances increasing by 37 percent. Withdrawals also went down among the trial group.

In the developed world, technology can make finances feel abstract, less tangible overall.

In the developed world, technology can make finances feel abstract, less tangible overall. With credit cards and mobile finance apps, we don’t feel the pain of our expenditures as viscerally as we would if we were paying with cash. But technology is also a boon to behavioral researchers, who can mold the user experience to encourage a positive result.

“When you move into the tech world of artificial intelligence and chatbots, this is something we can solve for,” Berman says. “We can say that in the months users don’t have a lot of money, we won’t automatically save for them, and in months that they do have a lot of money, we will. So we take out the complex decision-making and help people make choices that are in their long-term best interest.”

Technology can entice savers with another marketing tool: gaming. Commonwealth has answered that challenge with SavingsQuest, an app that makes savings a game, complete with an animated dancing pig. Users earn badges every time they meet financial goals—“leveling up” the way they would in a videogame. Participants in the pilot program saved 25 percent more frequently than other bank customers, putting away a combined $300,000 in savings in three months.

“So many of us walk around feeling like we’re not that person who knows how to save,” Flacke says. “But we can catapult ourselves over that psychological barrier and look around and go, ‘Oh, look at that; I just managed to put aside a little bit of money.’”

For many of his users, this is no small thing. “And then,” he says, “your own identity, and sense of what you’re capable of, can shift.”